by Calculated Risk on 11/09/2009 08:39:00 AM

St. Louis Fed President James Bullard told the Financial Times that uncertainty about the inflation outlook is the most since 1980.

From the Financial Times: Uncertainty ‘high’ over inflation outlook

“For 2009, in particular, and maybe a little bit into 2010, you have to worry about getting out of the recession, establishing your recovery, making sure the recovery has really taken hold. And then, at the appropriate time, when things are all going forward, you have to switch gears and watch whether the inflation rate is coming up.” [Bullard said]
excerpted with permission

Bullard noted that the first step would not be raising the Fed Funds rate, and unwinding some of the unconventional policy. Bullard also added the Fed is concerned about asset bubbles this time:

What is different this time is that the argument about staying too low for too long is going to weigh pretty heavily on the committee. It is more than just: ‘What does the output gap look like; what does inflation look like?’ ”

He said it was also the issue of whether “you are generating the conditions that might foster a bubble that really might come back to hurt you later? I think this will be a big issue for the committee.”

My comment: historically the Fed does not raise rates until well after the unemployment rate peaks. And the Fed plans on buying MBS through the first quarter of 2010 - so Bullard's comment about starting to switch gears "a little bit into 2010" is probably way too early.